Trading volume was light in advance of Friday's September employment report, which could hold the key to further Fed rate cuts
Major U.S. stock indexes ended modestly higher Thursday, getting a late shot of buying after a sluggish, low-volume trading session, with investors unwilling to take major new positions ahead of the all-important nonfarm payrolls report due out 8:30 a.m. EDT Friday. The strength or weakness of the September data will be a key factor in the Federal Reserve's decision on further rate cuts at its policy committee meeting in late October.
On Thursday, the Dow Jones industrial average finished up 6.26 points, or 0.04%, at 13,974.31. The broader S&P 500 index climbed 3.25 points, or 0.21%, to 1,542.84. The tech-heavy Nasdaq index advanced 4.14 points, or 0.15%, to 2,733.57.
On the New York Stock Exchange, for every 20 stocks that were up, 12 lost ground, while Nasdaq breadth was 16 to 13 positive. Given the number of lowered profit expectations that companies announced for the latter part of the year, it was surprising that there wasn't more profit-taking, especially after the gains seen earlier this week, analysts said.
Equity analysts seemed to be growing more optimistic about the homebuilding sector, with UBS upgrading Standard Pacific (SPF) just a couple of days after Citigroup raised its opinions on the group. But investors weren't buying it and homebuilder stocks sold off after three consecutive days of gains.
In a light day for economic data, August factory orders fell 3.3%, more than the 2.4% decline that was expected, after a 3.7% surge in July, Action Economics said. Non-durable orders and shipments fell 1.6%, led by a price-related 7.4% drop in the petroleum component, while inventories declined only 0.1%. The numbers will guide forecasts for the contribution of equipment spending and inventories to third-quarter GDP.
Like the other economic data this week, the factory orders report is a mere prelude to the release the Street is anxiously awaiting -- the September nonfarm payrolls report coming out Friday. Forecasters are expecting anywhere from 75,000 to 175,000 new jobs added to the U.S. economy on the month. Many observers believe August's 4,000 decline will be revised upward, S&P MarketScope said.
The September payrolls increase needs to be within a fairly tight band to be acceptable to the market, said Art Hogan, a chief market analyst at Jefferies & Co. He placed it between 50,000 and 125,000, and said that anything larger than a 125,000 gain would spur a negative reaction in the marketplace "because a lot of people made bets that the Fed would cut rates again" and "that would portend the Fed being on the sidelines” regarding further easing at its Oct. 30-31 policy meeting.
The markets will also be skittish about the magnitude of the revision of the August payrolls data, he said. "You wouldn’t want to see -4,000 turn into +54,000. A bounce to anything up to +25,000" would be acceptable."
On the flip side, too big a downward revision of the August payrolls would also likely prompt a negative response in the markets, Hogan added.
"We’re in a bad news is good news mode now," he said, referring to the hopes of further Fed rate cuts. "You don’t want to see it bad enough that it prompts a more serious reflection on the possibility of recession."
The assets write-downs that bulge-bracket firms such as Citigroup and UBS have taken against their third-quarter earnings are helping the market get a better handle on the extent of the damage from the subprime meltdown. If there continues to be relatively little leakage of weakness in residential real estate into the broader economy, "you can make the case that we don’t necessarily have to see a recession," Hogan said.
Initial jobless claims rose 16,000 to 317,000 for the week ended Sept. 29, after an unexpected 12,000 drop to 301,000 the week before. The previous week's number was the lowest reading since May, and the notable drop in claims over the last month runs in contrast to lingering recession fears in the market, Action Economics said.
Crude oil for November delivery in New York, rebounding from early losses, rose $1.50 to $80.44 a barrel on Thursday, as the U.S. dollar index declined after the European Central Bank and the Bank of England left interest rates unchanged. Supply concerns had ebbed slightly after a U.S. government report on Wednesday showed a surprising 1.2 million barrel gain in crude inventories.
Among stocks in the news Thursday, NutriSystem (NTRI) shares plunged 33.6% to close at a new 52-week low of $31.59, after it said it sees lower-than-expected revenue of $188 million and earnings of 62 to 66 cents a share in the third quarter. The weight-loss products manufacturer's board approved a $100 million increase to its stock repurchase program and it opened a $200 million credit facility. Lazard reportedly downgraded the stock to hold from buy.
Constellation Brands (STZ) shares rose 1.5% on a second-quarter earnings report of 33 cents a share, up from 28 cents a share in the year-ago period, as lower restructuring and operational charges offset a 32% drop in sales. The world's largest wine producer expects a fiscal 2008 profit of $1.34 to $1.42 on low-single-digit growth in organic net sales.
International Speedway (ISCA) shares fell 4.1% after it posted a third-quarter profit of 53 cents a share, down from 64 cents a share (non-GAAP) a year ago, as higher deferred income-tax expenses, inventory charges and other items offset a 10% revenue increase. The company expects fiscal 2007 non-GAAP earnings of $2.70 to $2.75 a share on revenue of $810 million to $815 million.
Dresser-Rand Group (DRC) shares finished 10.3% lower after the company said late Wednesday it had lowered its operating income outlook for the remainder of the year due to a strike and flat aftermarket sales. The supplier of rotating equipment to the oil and gas industries now expects third-quarter operating income of $32 million to $36 million and full-year operating income of $205 million to $225 million, compared with the $250 million to $270 million it had forecast three months ago.
Wendy's International (WEN) reported a slight rise in average sales at U.S. restaurants open at least one year for the third quarter, and a 1.3% increase in average same-store sales at U.S. franchise restaurants. Shares were down 1.1%.
Acuity Brands (AYI) shares fell 6.0% after it posted a profit of $1.16 a share for its fourth quarter, up from 93 cents a year ago, but two cents below analysts' consensus estimate of $1.18 a share. Sales rose 3.0%.
Wet Seal (WTSLA) shares dropped 18.6% in response to the company's warning that September same-store sales are expected to fall 7.5% to 8.5%, vs. a previous forecast of -1.0% to +3.0%. The retailer expects October comparable sales to fall 2% to 6% and slashed its third-quarter profit outlook to breakeven to two cents a share from a prior estimate of seven to 10 cents a share.
European equity indexes finished mostly lower Thursday after the ECB and Bank of England kept interest rates unchanged. In London, the FTSE 100 index gained 0.19% to trade at 6,547.90. Germany's DAX index edged 0.13% lower to 7,944.99. In Paris, the CAC 40 gave back early gains to trade 0.03% lower at 5,804.39.
Asian markets ended lower. In Japan, the Nikkei 225 index fell 0.62% to 17,092.49. In Hong Kong, the Hang Seng index dropped 1.84% to 26,973.98. The Shanghai composite index is closed all week for a Chinese national holiday.
Treasuries strengthened in light trading ahead of the Friday morning release of the September jobs report. The 10-year note climbed 12/32 to 101-28/32 for a yield of 4.51%, and the 2-year bond edged up 02/32 to 100-01/32 for a yield of 3.98%. The 30-year bond gained 22/32 to trade at 103-26/32 for a yield of 4.76%.